El Salvador Walks Back Its Bitcoin Law

Four years after becoming the first country to adopt bitcoin as legal tender, El Salvador is taking a step back. The Legislative Assembly has approved changes to the country’s Bitcoin Law, effectively removing bitcoin’s status as legal currency.

On January 29, the assembly—controlled by President Nayib Bukele’s New Ideas Party—passed the legislation with a 55–2 vote. Six articles of the Bitcoin Law were modified and three others were repealed.

Under the new rules, bitcoin is no longer considered “currency,” though it remains “legal tender.” Another change makes using bitcoin entirely voluntary. (Previously, the law mandated that businesses accept bitcoin for any goods or services they provided.) Additionally, bitcoin can no longer be used to pay taxes or settle government debts. The government is also stepping back from its involvement in Chivo Wallet, the state-backed digital wallet.

The changes are expected to take effect 90 days after their publication in the official gazette, which is likely to happen in the next few days.

The reforms come as part of a broader financial agreement between Bukele and the International Monetary Fund (IMF). One of the conditions for a proposed $1.4 billion Extended Fund Facility loan was that El Salvador mitigate “potential risks of the Bitcoin project.”

The IMF has been critical of the country’s crypto policies since Bukele made bitcoin legal tender in 2021. “There are large risks associated with using Bitcoin as legal tender, especially given the high volatility of its price. We don’t recommend it,” the organization said in 2022. 

Despite these changes, the administration insists it remains committed to bitcoin. Milena Mayorga, El Salvador’s ambassador to the United States, has said that El Salvador is still a “bitcoin country” and will maintain—and even expand—its bitcoin reserves.

“You have to adapt to the current situation and this is the decision that was taken in the Assembly, but that does not mean that the country will stop having a bitcoin reserve,” she explained.

Recent reports indicate that the government has purchased at least seven more bitcoins in recent days, bringing its total holdings to 6,055 bitcoins, valued at approximately $612 million, according to government data.

While the recent legislation signals a partial retreat from Bukele’s ambitious bitcoin vision, the government’s continued investment in the cryptocurrency signals that El Salvador isn’t ready to walk away from crypto just yet.

The post El Salvador Walks Back Its Bitcoin Law appeared first on Reason.com.